tv Nightly Business Report PBS February 24, 2011 1:00am-1:30am PST
>> tom: clashes in libya lead to $100-a-barrel oil here in the u.s. and another day of volatility on wall street. >> susie: so what happens next, and how will all this turmoil play out in the global economy? we talk with pimco c.e.o. mohamed el-erian. you're watching "nightly business report" for wednesday, february 23. this is "nightly business report" with susie gharib and tom hudson. "nightly business report" is made possible by:
this program is made possible by contributions to your pbs station from viewers like you. captioning sponsored by wpbt >> susie: good evening everyone. continuing turmoil in the middle east today pushed up prices on oil and gold. but tom that wasn't the case for stock prices. the major averages fell for the second straight day. >> tom: susie, oil was the big story. in new york trading, april crude futures briefly traded above the $100-a-barrel level on concerns about supply disruptions in libya. but by the close, oil settled at $98.10-- up almost $3. now those same concerns also gave a boost to gold-- up over $12 to $14.14 an ounce.
that's $1,400-plus an ounce. on wall street, the dow lost 107 points, the nasdaq fell 33 and the s&p 500 was down eight. >> susie: also today, saudi arabia's king abdullah went on the offensive, promising his subjects $36 billion of benefits to deal with housing, education, and unemployment issues. our guest tonight was recently in egypt and saudi arabia. he is the chief executive of pimco, the world's largest bond fund. joining us now, mohamed el- erian. great to see you again. >> thank you. >> susie: let's start talking about saudi arabia. do you think that there's a risk of the revolt in the middle east spreading to saudi arabia? >> it's possible but not probable. in the sense that saudi arabia is a higher per capita income. as you just noted king abdullah is trying to get ahead of this process by recognizing that people are worse off because of higher commodity prices and higher
food prices. and saudi arabia is able to pre-empt, if you like, much of the, plus it's a monarchy, plus it has legitimacy in terms of... so i think we'll see more generally going forward is a lot more differentiation within the middle east and north africa. >> susie: meanwhile investors and traders are factoring in a lot of risks. we saw oil prices getting up to the $100 level. do you think that this is the new level for oil? or is it temporary? >> i think it is the new level for a while. and for good reason. if a few things happened in the last few days. first the violence spread in an oil rich quarter, putting a big question mark over the supply of oil. secondly we have bahrain where the sectarian politics are an issue. so whatever your view was for
the supply of oil beforehand, you've got to incorporate a risk premium which will push the price up. there's also the demand side. right now the major discussion going on in the board rooms of airlines is should we hedge at this level. what if oil prices go higher up? so the oil being such a critical import initially when the price goes up suddenly, it causes people to hedge and stockpile even more. so it wouldn't surprise me if oil prices stayed high for a while. >> susie: also on the other side you brought up airlines. some airlines are already raising ticket prices because they are dealing with higher jet fuel prices. we've seen gasoline prices go up higher at the pump. as we see more and more of these kinds of price hikes, what does this mean for the u.s. economic recovery, is it going to get choked off? >> it's a concern. when you shock the global economy and the u.s. economy with an oil price hike, it results in the winds of
stag-flation. so on the flation side it means higher input prices and some companies will be able to pump that through in terms of final prices on their output. so that's the inflation side. on the stag side, it means lower growth, because higher oil prices consume more of consumers' income and mean less expense on other things. so unfortunately we are now having more head wind to recovering in the u.s. that was picking up pace, albeit slowly. >> susie: and this stag-flation not just in the u.s. but speaking a cross the global economy, right? >> i am, although it's important to remember that there are certain countries and certain companies that will do better going forward. so if you're an oil ex porter in a relatively calm neighborhood, this is great for you. you're getting higher prices and therefore higher revenues. if you're an oil company, your profits are going to go up, so the world as a whole is worse
off. but certain parts of it will benefit. >> susie: let me talk to you a little about the american dollar. in times of crisis the american dollar has been a safe haven, but not this time. it's the swiss frank. why is that and should we be worried? >> first the facts, and we talk about this a lot in our investment committee. if you look at the value of the dollar on january 24, which is before the egypt turmoil really started, and then compared it a month later, the dollar is one percent weaker. and that's not what one should expect. as you just said, you would expect the dollar to be stronger. you would expect the dollar to benefit from all this political uncertainty. why has that not happened? there's a good reason and a bad reason. the good reason has to do with interest rate differentials, markets are expecting interest rates to go up faster outside the u.s.. but the bad reason is that this is a warning shot. this is a warning shot that the u.s. has to get its act
together and that the u.s. can't take for granted that it will be the recipient of a flight to quality and a -- so it's an important warning shot about having to get our fiscal deficits into order and get our structural reforms immeted. >> susie: it's a big issue and something that we hope to come back to you and talk about in the future. but thank you so much for your insight for tonight, we really appreciate it. >> thank you. >> susie: we've been speaking with mo hammed el-erian, c.e.o. of pimco. >> tom: here are the stories in tonight's n.b.r. newswheel: the f.d.i.c. says last year was a watershed for banks. bank failures likely peaked at 157, with the industry earning $87 billion in profits. now that money came because banks put aside less money to cover bad loans rather than a boost in lending. f.d.i.c. chairman sheila bair says that needs to change. >> but i also think the banks
need to get back to the basics of making loans and understanding the creditworthiness and the ability to repay of their borrowers-- that old-fashioned lending that they used to do. we need to see more of that pick up again. >> tom: meanwhile, a banner year for bonuses on wall street. last year was the second best on record even though cash awards fell 8% to just under $21 billion. the average bonus? $128,000-- off 9% from the year before. still ahead, as protests continue over efforts to limit the bargaining power of state workers, we ask, "does collective bargaining help or hurt state economies?" >> susie: home sales perked up last month, and that's despite nasty winter weather in some areas of the country. sales of existing homes rose 2.7% in january. economists expected a decline. now it's welcome news as the housing market gears up for the spring selling season. suzanne pratt headed to one new york suburb to see if new sales are budding.
>> reporter: in tarrytown, new york, just 30 miles from manhattan, it's pretty clear that springtime is still weeks away. nevertheless, real estate broker patty neuwirth says an early pickup in new listings already suggests it will be a solid spring. she thinks low prices, better consumer confidence and a strong stock market will bring buyers into her agency. and, she expects a big increase in sales over last year. >> we are in a better place now in terms of the economy than we were last year, and we jumped 20%, so i absolutely at a minimum would expect to something like 20%. >> reporter: if tarrytown gets its strong spring selling season, it may be an exception to other small towns and cities around the u.s. the national housing market is still facing a lot of headwinds, including rising mortgage rates, high unemployment and a large number of distressed properties. economist ethan harris says the record level of foreclosures is
a big part of why the housing recovery is stuck in the basement. >> i think we're still fighting against a tidal wave of foreclosures. once that kind of clears out, then i think the better economy will show through. >> reporter: on top of foreclosures, the number of first-time buyers fell to only 29% of the market in january. that's the lowest level in nearly two years. 40% is healthy. first-time buyers are considered critical for a housing rebound. clearance-sale prices should be a draw for them, but tighter lending standards are keeping first-timers away. so when does the nation's residential market finally recover? >> the real turn probably comes in 2012, 2013. what we're looking at right now is kind of a bathtub-like shaped recovery, where we're just at that very low bottom for a long period of time. >> reporter: on main street in tarrytown, a bathtub recovery is as good a reason as any to
venture into the world of home ownership. >> i think it's bottomed. yes, i absolutely do, certainly in this area. >> reporter: suzanne pratt, "nightly business report," tarrytown, new york. >> tom: at the end of last week we saw the equity markets hit post recession highs, but we've seen a couple days of selling since then. let's get you updated now in tonight's market focus.
we saw the second day of stiff selling of stocks as energy prices continue climbing. we start with the past five sessions for the s&p 500. with today's drop, just .6%, it's down more than 2.5% since last week. let's pull out to the last 30 sessions, with stocks coming well off their highs last week, dropping to the lowest level since the first week in february. the only major sector to find more buyers than sellers? energy. the energy select e.t.f. added 2%, rising to a new high on strong volume. as it continues to break out. chevron and exxon were the two best gainers inside the dow. both hit new highs.
how about cabot oil and gas? it was the best s&p 500 stock, jumping more than 12%. it raised its production outlook this year. now, as suspected, hewlett- packard was among the big losers today. this almost 10% drop came on a six-fold increase in volume after last night's earnings report. the drop takes the stock below prices it was at when former c.e.o. mark hurd was ousted in a scandal. while h.p. led the dow down, the industrial sector was the weakest in the market, driven lower by fed-ex, snap-on tools and tyco international. fed-ex is at its lowest price of the year. all three of these hit new highs at the end of last week. also seeing selling? frontier communications, down 7%, taking it back to october prices. trading close to $10 a share. a disappointing earnings report
and a loss of customers gets the blame. another big loser, washington post company. a 6% drop. earnings were down with pending government regulations on for- profit education firms like the post's kaplan unit. home improvement retailer lowes' earnings and revenues came in better than expected, but this quarter's outlook was a little on the light side of analyst estimates. the impact? shares dropped 1% on heavier volume. since december, shares have been trading between $24 and $26 per share. continuing in that tight range. two other retail movers. grocery store the fresh market shed more than 6% despite better-than-forecast adjusted earnings-- its first as a public company. apparel shop chico's jumped 9% thanks to a strong quarter, a dividend increase and a strong outlook. one to watch tomorrow? look at this. priceline.com. earnings beat the street while revenues came in light.
still, it had an optimistic outlook for this quarter. the stock saw a small dip before the numbers but rebounded as much as 5% after the close. the stock has almost doubled over the past 12 months. rising nicely. and that's tonight's "market focus." >> tom: the wisconsin state assembly could vote tonight to end collective bargaining rights of most public workers.
it's not the only state addressing this controversial issue. 10 others have legislative proposals to limit public worker collective bargaining. 45 states now require or allow public employees to band together and negotiate pay, pensions and health insurance. hank kim is the executive director of the national conference on public employee retirement systems. steven malanga is a senior fellow at the manhattan institute and author of "shakedown: the continuing conspiracy against the american taxpayer." gentlemen, welcome to "nightly business report". nice to see you two. hank, we'll begin but. how does the right to collective by bargain but public workers impact state budgets? >> tom, first of all, thank you for having me. and the answer is it clearly doesn't. if it did, then states like nevada, arizona and florida, their budgets would be balanced because they have no collective bargaining rights in those states. >> tom: steve, how about it, no impact on state budgets on the part of collective bargaining? >> well, if you look at places like new york, new jersey,
illinois, california, these are states with monstrous budget problems and these are states with the highest levels of collective bargaining among the states. so i think that you can exclude nevada because they had this incredible housing bubble that you're right has nothing to do with public employees. but in the other places you find extraordinary long-term lieant that, well, we've just -- lie ability, that as mayor daily said before he left, he ought to just bankrupt or pension system and start all over again. >> but steven, i think you'll agree that the bigger factor is the great crash of 2008, the great recession that we're suffering through. it's not that the public employees are bankrupting the states. it's the fact that there's no revenue coming in. it's the failed policies of the previous administration under eight years where we had tax cuts that were not paid for that had military
expenditures that weren't paid for, and as you put it, we had a housing bubble. >> tom: let steve respond, go ahead. >> illinois, california and new jersey have been in a perpetual state of budget crisis going back to 2003. illinois has not collected enough tax toes pay its obligations in more than a decade. they're not even putting money into their pension funds. this is not something recent. certainly, i absolutely agree with you that there's a difference between when you wake up in the morning and say my state can't pay its bills right now, some of that is obviously due to the recession. but these are, the states cannot deal with the recession because of the collective bargaining loss. >> tom: there's a group that supports unions, american rights at work that has found states allowing bargaining on average run deaf sits of more than 17% while states without bargaining are in the hole by 15% on average. we can certainly cherry pick individual states to support the case. but on average it seems like, steve, that collective
bargaining hasn't dug a deeper hole than those states without collective bargaining. >> but you're just talking about deficits which are part of the one and two-year cycle. look at the unfunded pension liabilitys of california, illinois, new york, new jersey. how are they going to be paid? let me give you an example. new jersey is, quote, balancing out budget right now by not putting $3 billion in a year that it should be puting into its pension system because it stb have the money. if you counted what on an sound basis they should be puting into their pension fund, their budget deficits would be much larger. >> tom: so, hank, you have paid very close attention in your position with those state budget itself. how about the unfunded -- >> as you know, pension plans on the e whole are about 80 to 85% funded. that is a very good funding status, and in fact the
ratings just recently came out with a report that said if a public sector pension plan is funded at' 0 -- 70% or above, it considered sustainable by fitch. i think the examples that steve raised regarding new jersey in particular is a classic case of where the politicians have failed to live up to their responsibilities. >> tom: we've got to leave it there. gentlemen, thank you for the certainly tin sight and the conversation, clearly this is a controversial issue. our guests tonight, hank kim with the national conference on public employee retirement systems, steven malanga with the manhattan institute. >> susie: here's what we're watching for tomorrow: weekly jobless claims are out, along with new home sales for january. also, taking charge when it comes to electric cars. our "planet forward" series visits rhode island to see what's driving businesses, utilities and environmental groups to work together, building public charging stations.
steve jobs was a no-show at apple's annual meeting today. but everyone was talking about him d wondering when he will return from medical leave, taking over again as c.e.o. nervousness about jobs' health triggered a controversial shareholder proposal calling for a detailed management succession plan, but it was defeated. one note from apple: a week from today, the company will hold a product launch event. we're hearing it's for a new version of the popular ipad. >> tom: four swiss bankers have been charged in virginia with helping u.s. taxpayers hide as much as $3 billion from the i.r.s. the paperwork didn't name the bank, but published reports say it's credit suisse. the bank and the justice department have not commented. all four bankers are believed to be in switzerland. u.s. officials are probing other banks that may be helping americans evade taxes overseas. b
>> susie: as more baby boomers head into retirement, they are finding the recession has made it much harder to be prepared. but while the challenges are greater, there are simple changes that can help. in tonight's "money profiles," benno schmidt explains those changes aren't just child's play. >> yummy in the tummy. peanut butter, right? yum, yum, yum? you like peanut butter!
>> reporter: linda sanchez is doing what she loves, and what she hoped would finance a healthy retirement: working with kids. >> i envisioned that i would be working here for the rest of my life. >> reporter: her south florida childcare center once flourished, but no more. >> my center is at 50% capacity, and i end up having had to subsidize the rest. >> reporter: that means spending her savings to keep the business going. because the economy is so bad that parents are home and unemployed there's no need to spend the money and send their children to daycare centers. >> reporter: sanchez knows about caring for others. her severely disabled daughter has required constant care for nearly 30 years, making any financial planning hard. >> i'm looking at retirement with nothing. with no savings, no anything. that's very scary, it really is. it's very scary. >> reporter: sanchez' predicament is extreme, but as baby boomers retire the outlook is alarming. a washington think tank, the employee benefit research institute, recently found
many are basically clueless when it comes to retirement. a b.c. study concluded 51% face lower standards. certified finanial planner ellen siegel says it's time for a new approach. we need to rethink what is retirement-- not just retirement age, but what is retirement. >> reporter: siegel stresses retirement has changed. people are living and working longer. >> it's kind of exciting, because it says "oh my god, it's not too late." >> reporter: she says start small, even if you've never saved for retirement. >> 1% or 2%, anyone can do really, because the economy can go down and people will absorb 10% or 20% reductions in spending. >> reporter: once in the habit, saving won't seem harsh. >> we don't like diets, but we like being thinner. >> reporter: delay retirement and put off social security to eventually get larger payments. make a list of items you must have: health, safety and mortgage expenses.
and look at discretionary spending honestly. >> i go through my credit card statements once a year, what i spent money on, and i go, "wow, did i really have to do this and this?" >> reporter: and put yourself first-- something boomers like sanchez find hard when they're struggling to get by. >> i've had to get another job and work another job just so i can pay my bills. and balance subsiding this center. >> reporter: seigel says it's a balancing act when it comes to spending. >> the pleasure of doing those things today against the delight of having a larger nest egg. >> reporter: and making the lifestyle changes to ensure a comfortable and earned retirement. in miami, benno schmidt, "nightly business report." >> susie: that's "nightly business report" for wednesday, february 23.
i'm susie gharib. good night everyone, and good night to you too, tom. >> tom: good night susie. i'm tom hudson. good night everyone. we hope to see all of you again tomorrow night. "nightly business report" is made possible by: this program was made possible by contributions to your pbs station from viewers like you. captioning sponsored by wpbt captioned by media access group at wgbh access.wgbh.org